Residential street with older houses in Toronto

Canada’s top bank says housing crash could fix T.O.’s affordability problem

Toronto’s housing market certainly isn’t pretty, but with a new report out by RBC detailing just how dismal the market is across the country, it’s looking worse than ever before. The report noted that, overall, there is no quick fix for our affordability crisis — short of a housing crash, that is.

Author and assistant chief economist Robert Hogue noted in the report that it will take years and “concerted” efforts to restore housing affordability. “Short of a housing crash that would destroy property values or an unexpected about-face in monetary policy, any progress in restoring housing affordability is likely to be slow,” the report states. 

Hogue succinctly outlines the problem with Canada’s current market, and the obstacles in the way to fix it. Supply must be increased by “giant leaps,” he states — something that is difficult to quickly achieve when building new homes takes years, and often doesn’t result in units that “ordinary Canadians” can afford considering the high construction costs.

The report calls on all levels of government to remove obstacles in the way of homebuilding, including incentivizing the production of purpose-built rentals in the face of high interest rates.

While cooler resale activity and a rebalancing of demand-supply conditions are likely to temper price appreciation in most of Canada in the near term, high interest rates will keep the bar elevated for buyers,” the report states. “We think it will take material interest rate cuts to get ownership costs on a distinctly more affordable track. However, our view is the Bank of Canada isn’t about to switch to cutting mode until mid-2024. We expect little relief in the interim.”

The report assessed the market in many major cities in Canada, including Toronto. The headline for our fair city? No material relief in sight. “Last year’s housing correction brought little relief to Toronto buyers. So far, it translated into only one period (the first quarter of this year) of decline in RBC’s aggregate measure. The second quarter reading (an eye-watering 79.6%) was up again—indicating the dream of owning a home remains far out of reach for ordinary folks,” the report states. 

That aggregate affordability measure is the ratio of ownership costs to median household income. One other city fared much worse — Vancouver is at 97.5 per cent — while the rest of the country fared much better. Montreal is at 50.9 per cent, Ottawa at 46.5 per cent, Calgary at 44 per cent and the whole of Canada at 59.5 per cent. 

Hogue notes that “the bar is impossibly high” for many in Canada, especially in larger markets, and credits the notable cooling in home resale activity in Ontario and British Columbia to the extreme difficulty in affordability conditions. “They are poised to weigh on demand for months to come in both regions, with many buyers entirely priced out in Vancouver and Toronto.”

In the short-term in Toronto, prepare for a subdued market as interest rates remain high — prices are predicted to level off and potentially decline slightly.

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